Why You Should Own Fewer Stocks

Editor’s Note: Chris Mayer is one of the best stock pickers in the game. He’s the only analyst Bill has committed to follow with $5 million of his own family money.

This week in the Diary, we talked about three special “100 baggers” (Southwest Airlines, L Brands, and H&R Block). These companies returned more than 100x to investors during a period when the broader market went absolutely nowhere.

And there is something these three companies had in common.

Southwest recorded $6 million in sales in 1972. By 1975, it did $23 million in sales. And by the end of the decade it hit $200 million in sales.

L Brands had sales of $210 million in 1978. It hit $1 billion in sales in 1980. By the end of the 1980s, it hit $5 billion in sales.

H&R Block did just $14 million in sales in 1967. In 1975, it passed the $100 million mark in sales.

See a pattern here?

All three were small companies with lots of room to grow.

For larger companies, the condition of the economy can be a constraint. They depend on broad-based economic growth. It is hard for Coca-Cola or McDonald’s to grow faster than the overall economy. They’re just so big already.